Aussie boots do walking for US firm

THEY are so ugly they are beautiful. They are so rare they must be valuable. Kate Hudson and Sadie Frost have them, as do Oprah, Gwyneth Paltrow and Kate Moss - to name but a few.

Which is why, if you are not wearing a pair of shocking pink, powder blue or original suede sheepskin boots called Uggs this winter, you are nobody as far as the fashion mafia is concerned.

The boots, created in the 1970s to keep the feet of Australian surfers warm after they stopped riding the waves, have unaccountably become the season's hottest fashion item.

And that has sent the shares of Deckers Outdoor Corporation, the Californian niche footwear company that owns the brand, into the stratosphere. From a low of $3.55 in the last year they have hit a high of more than $21, and are currently trading at about $18.80.

This is partly because Deckers, which bought Uggs in 1995, has recently done a spectacular job of marketing and branding its products - particularly the boots.

Thanks to Uggs sales - which strode ahead 44% in the first nine months of last year - the company this week revised its profit forecast for 2004. It expects sales to be about $140m (£76.8m) compared with a previous forecast of about $130m.

Another reason for the share price rise is that Deckers is up for sale and has hired RBC Capital Markets to seek buyers. Deckers chairman Douglas Otto says it has already had approaches.

Paul Altman of California investment bank Sage believes the company could fetch about $100m. Earnings are likely to be about $10m for 2003, he said. But some analysts believe the shares are overvalued, arguing that the fad for Uggs will soon pass.

Harris Hall, an analyst at Wedbush Morgan in Los Angeles, said there was now 'a little bit of froth in the stock'. He rates the stock as a hold, arguing that the surge in Uggs disguises the fact that two thirds of Deckers' business is in sales of its Teva sandals. 'Teva has great growth opportunity,' he said.

Deckers bought Teva in 2002, and sales there rose 53% in the first nine months of last year, to $9m from $5.9m. It also owns footwear brand Simple.

The purchases have transformed the company's fortunes. For the nine months to last September, sales were up 16% on the same period the previous year while pre-tax income soared by 178%.

From a rocky condition in 2002, when earnings slumped as the company was battered by high costs and litigation expenses, Deckers is now financially secure.

'It is in control of its future,' said Dutton & Associates, an independent US research firm, in a recent comment. 'The company has been re-defined.' It added that momentum in sales and earnings growth was likely to continue for the foreseeable future.